Once you strike a deal for a car at the dealership, you might think all the financial decisions have been made. But then you are thrown into a little Finance and Insurance office where the finance manager throws out a bewildering set of choices for you, all of which cost you more money and with little time to make up your mind. A big chunk of money, and potential dealer profit, will arise when looking at the offered extended vehicle warranty. Now that you have a new to you vehicle, are extended vehicle warranties a good idea?
Most car dealerships will rush to sell you an extended warranty. They may rush you into making a decision, and after spending hours negotiating the best deal on your car, you may be too tired to argue over the prices of these warranties. But a few minutes of advance work could save you thousands.
Extended Warranty Offerings
Generally, extended warranties can be divided into two types. Most extended warranties, especially for a new car, will be backed by the manufacturer. It seems weird that after a company extols how well built their vehicles are, they turn around and sell you an insurance policy for possible repairs after the new car warranty expires. But they do.
The second version of an extended warranty is offered through the dealership or another private company. This type of warranty is backed solely by that policy issuer. This means you aren’t dealing with the carmaker but instead a second party. If that issuer goes bankrupt, your extended warranty is probably toast and worthless.
Length of The Extended Warranty
The extended warranty on its face is pretty basic. It offers an extended vehicle warranty after the factory warranty expires. You might be able to get a 5, 7, and even a 10-year warranty. But, that term is deceptive, since it is an overall time span and includes the initial factory warranty. So buy a seven-year warranty, on a car that has initially a 3-year factory warranty, and you are really getting a warranty for years 4-7 of ownership.
Mileage Limits of Warranty
Companies aren’t stupid and realize that some drivers put more miles on their cars than others. So extended warranties typically have a limit on the length of the warranty based also on the mileage on the car. Buy a 7-year/75,000 mile warranty and if you reach the mileage limit after only 5-years then your warranty coverage ends at that time. Most companies give you a variety of mileage limits for any specific warranty term, so you can pay for the miles you anticipate you’ll drive over the length of the extended warranty.
Parts And Repairs Covered
Here’s where a potential buyer needs to get out the magnifying glass. Most warranties will not cover consumable parts; like batteries, brake pads, oil changes, alignments, and tires. Some companies will only cover the drive train and leave out things like sound systems and air conditioning. Some might not pay for shop supplies or other standard costs of a car repair. Others will offer “bumper to bumper” coverage but expect to pay much more for this expansive coverage.
Deduce The Deductible
Another variation in the extended warranty is what the consumer must pay when the car is repaired. Some offer a $0 deductible and pay for the full cost of the repair. Others require the car owner to pay $50 or $100 deductable for the repair. Some warranties charge a deductible per component, so if the AC conked out and the alternator failed that warranty would require you to pay two deductibles.
Should You Buy an Extended Warranty?
So now that we reviewed the types of extended warranties and their variations, let’s consider if purchasing one is worth your hard-earned money.
1) Extended warranty companies exist to make a profit. They hope the premiums they collect will be more than the repairs they pay for. If you are capable of paying for major repairs out of your own pocket without heartburn, you may be better off skipping the extended warranty offerings and just paying for repairs on your own as and if needed.
2) Consider how long you plan on keeping the car. If you only plan on keeping the car for three years, why pay for a five-year warranty?
3) Likewise if you are a low mileage commuter, do you really need a 5-year warranty paired with 100,000 miles? That averages 20,000 miles a year. If you drive less, look for a warranty with a shorter mileage span.
4) Weigh the cost of the zero deductible warranty versus one that requires a $100 co-pay per visit. How many different repairs would your car require before the cost savings vanish?
3 Ways to Save Money When Buying an Extended Warranty
If you’ve decided that an extended warranty is possibly still a good value for your situation, here are three additional steps you can take to save some money.
1) Believe it or not, you don’t have to buy the extended warranty from the dealership you are buying the vehicle from. You could buy a manufacturer-backed warranty from any authorized dealer. There are other dealers that might be willing to discount the price for a quick, painless sale. In recent years manufacturers have wised up to this shopping “opportunity” and some now limit the territorial area that a dealer can sell an extended warranty within.
But it might pay to shop around among your authorized dealers. If nothing else, your car selling dealership might lower their price, knowing that you are shopping around. The one drawback to this strategy is you cannot roll the cost of the extended warranty into your loan amount if you buy the extended warranty from another dealer.
2) Be sure and see what extended warranties options may be offered through your credit union or bank. While they will not be the factory-backed warranty, the savings may be substantial for these second market warranties.
Consider what the deadline for buying these warranties is. Many allow you to buy the extended warranty, as long as you have at least 30-days left on the initial factory warranty. That longer time span can delay the purchase and let you see how often the car is going in for repairs under the initial warranty. Or perhaps you won’t even still have the car.
3) This raises a good point. Read the fine print on the warranty, in case you don’t own the car for the length of the warranty. Some allow the new owner to continue the balance of the warranty, usually for a transfer fee. That could be a selling feature if you are selling the car privately. Some extended warranties might also allow you a prorated amount to be refunded after you no longer own the car.
Do Your Homework And Choose Wisely
Extended warranties are legal documents, so read the terms carefully and consider all your options. A carefully researched decision can be a wise choice, while a rash, uninformed purchase may be costly and regretted for years afterward. Choose wisely my friend.